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Labour Costs and the Size of Government

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JournalOxford Bulletin of Economics and Statistics
DateAccepted/In press - 8 Apr 2016
DatePublished (current) - 25 Jun 2016
Issue number2
Volume79
Number of pages25
Pages (from-to)251-275
Original languageEnglish

Abstract

Given inelastic demand for labour-intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business-sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post-war era.

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© 2016, The Department of Economics, University of Oxford and John Wiley & Sons Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details.

    Research areas

  • Size of Government, Labour Share

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